11)

Economic growth viewed through the Solow model.South Korea and the Philippines in 1960 were very similar countries in many respects. Both were relatively poor with GDP per capita of about $1500 (about 10% of the U.S. level at that time). In both countries about half of the population was working and only very few were college educated.

Between 1960 and 2010 however, the paths of South Korea and the Philippines diverged dramatically. In the Philippines, per capita GDP grew at about 1.6% per year. In contrast, South Korea became one of the world's fastest growing economies, with growth of about 6% per year. By 2010, per capita GDP in South Korea stood at $26000 whereas in the Philippines per capita GDP was only $3200.

Up to 1960, South Korea and the Philippines had a very similar investment rate of about s = 0.15. But between 1960 and 1980, South Korea's savings rate increased to about s = 0.4 and has stayed at this new high level from 1980 onwards whereas in the Philippines, the savings rate remained at s = 0.15.

They also share the sameconstantcapital depreciation ratedand the sameconstantemployment to population ratioe.Assume that production in both countries follows a Cobb-Douglas function: Y = AK^(1/3)L^(2/3).

i) (3 points)Describe how the Solow diagram changes whenonlythe savings rate increases.

ii) (4 points)Describe how the Solow diagram changes whenonlythe TFP increases.

iii) (8 points)Can the difference in the savings rate only explain why per capita GDP in 2010 in South Korea is more than 8 times higher than in the Philippines ($26000/$3200 = 8.125)?Use the steady state solution of GDP per capita of the Solow model to justify your answer. Use your answers to question as well to support your arguments.

12)

Consider the economies of South Korea and the Philippines in question 11.

Use the growth accounting equation and the steady state solution of GDP per capita to compute the averageannualgrowth rate of TFP (in %) in the Philippines from 1960 to 2010.Round your answer to one decimal place and omit the%sign in your answer.

13)

Consider the economies of South Korea and the Philippines in question11.

Use the growth accounting equation and the steady state solution of GDP per capita to compute the averageannualgrowth rate of TFP(in%)in South Koreafrom1960to1980.Round your answer to one decimal place and omit the%sign in your answer.

Hint: The average annual growth of the savings rate for South Korea during that period was 5%.

14)

Consider the economies of South Korea and the Philippines in question 11.

Use the growth accounting equation and the steady state solution to compute the annual growth rate of TFP (in %) in South Korea from 1980 to 2010.Round your answer to one decimal place and omit the % sign in your answer.